BULGARIA – PROSPECTIVE LOCATION FOR FOREIGN DIRECT INVESTMENTS Elena PISHTOVKOLEVA, Director Investment Policy Ministry of Economy and Energy November 2007

CONTENTS  FDI Statistics  Investment Competitiveness of Bulgaria  Prospective Sectors  Incentives  Industrial Zones

High and constantly rising economic growth Bulgaria is among CEE leaders Industry – main growth engine Source: NSI, EUROSTAT MACROECONOMIC TRENDS

Source: Мinistry of Finance Since 2000 the credit rating of Bulgaria has been raised over 25 times. AgencyData Foreign currencyLocal currency Long- term Short- term Outlook Long- term Short- term Outlook Japan Credit Rating Agency BBB+-Stable А- - Stable Standard& Poor’s BBB+A-2Stable BBB+A-2Stable Fitch BBBF3StableBBB+-- Moody’s Baa3-PositiveBaa3- Stable CREDIT RATINGS MACROECONOMIC TRENDS

Source: Bank Austria Creditanstalt FOREIGN DIRECT INVESTMENT

Source: BNB

Source: BNB, IBA * * Record inflow of non-privatization investments in FOREIGN DIRECT INVESTMENT

Source: BNB FOREIGN DIRECT INVESTMENT IN BULGARIA BY COUNTRIES, %, EUR mln – 2006

FOREIGN DIRECT INVESTMENTS IN BULGARIA BY INDUSTRY, % 1998 – 2006

FOREIGN DIRECT INVESTMENTS in 2007

INVESTMENT COMPETITIVENESS A.T. Kearney’s Global Services Location Index /March 2007/: Bulgaria - 9 th worldwide and 1 st in Europe in terms of investment attractiveness UNCTAD’s World Investment Report 2007: Bulgaria - 7 th worldwide in terms of FDI Performance

DELOITTE’S SURVEY OUTLINE   Products for lower volume niches   Goods and services with average and high level of value added   In shorter term – investments in energy, transport and infrastructure   In medium and long term – greenfield investment, acquisitions and merges. Most prospective sectors: mechanical engineering, electronics, ICT, BPO THE MAIN COMPETITIVE ADVANTAGES OF BULGARIA   Services sector: IT, RES, transport and tourism   Industry sector: electronics, mechanical and electrical engineering and steel processing   Primary sector: mining and quarrying, petroleum products MOST PROSPECTIVE SECTORS FOR INVESTMENT UNCTAD’S SURVEY ( ) OUTLINE INVESTMENT COMPETITIVENESS

  Corporate Tax Rate – 10% as of   0% corporate tax rate in 138 municipalities with high unemployment rate   10% flat tax rate on personal incomes as of   Reduction of the social security burden by 6 percentage points as of 2006 and allocation of over USD 384 mln. for use by the business   Increased depreciation rate to 50% for purchasing new production and technology equipment, machinery, software and hardware TAX POLICY

Source: Employment Agency over 50% than average UNEMPLOYMENT RATES - MUNICIPALITIES over 35% than average

LAW on INVESTMENT PROMOTION Promoted economic activities   In the industrial sector: manufacturing industry, energy production from renewable energy sources   In the sector of services: high tech activities in the field of computer technologies; research and development activities, as well as in the field of education and humanitarian health services Classes of Investment   Class A – over 36 EUR mln.   Class B – over 21 EUR mln. Opportunities for reduction of the thresholds for:   Investments in municipalities with high unemployment   High-tech production and services

LAW on INVESTMENT PROMOTION Incentives Shorter terms of administrative service Individual administrative service Property rights to real estate with state or municipal ownership Financial support for construction of public infrastructure Financial support for training for acquiring professional qualification

Trans-European transport corridors crossing Bulgaria

INDUSTRIAL ZONES State or Municipal Ownership Private Ownership

Vocational schools and technical universities in Bulgaria Technical universities Vocational upper secondary schools with Machine building and Heavy metal industry related programs Vocational Electrical Engineering upper secondary schools Vocational Electronics upper secondary schools Number of university graduates, Source: IBA

Graduation from universities IT and engineering programs in Bulgaria BA+MA, 2005 Total science graduates – 9000 Total IT & engineering graduates Source: IBA

Economic activityI quarterII quarter Total Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Trade, repair of motor vehicles and personal and household goods Hotels and restaurants Transport, storage and communication Financial intermediation Real estate, renting and business activities Public administration; compulsory social security Education Health and social work Other community, social and personal service activities Average monthly wages and salaries of the employees under labour contract by economic activities in 2007* (BGN) (BGN) Source:NSI * - Preliminary Data

Protection of Intellectual Property Rights the Case of Bulgaria 2007 SPECIAL 301 REPORT OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE „Bulgaria has been removed from the Watch List due to improvements in IPR enforcement efforts and passage of IPR legislation in response to heightened engagement with the United States.”

Source:IBA

Korean Investment to SE Europe Source: Korea Eximbank

  Automotive Industry   Mechanical engineering   Electronics   ICT   Energy   Food processing Attractive sectors for Korean investments in Bulgaria

Why Bulgaria? Quality of human capital  Education levels among Europe top 5%  7% of workforce has engineering degrees  English studied by 70% of students  Motivated and entrepreneurial attitude Quality of business environment  Strong institutional support for foreign investors  No restrictions to capital flows Quality of life  Excellent all-season outdoor recreation  Diverse cultural heritage and art activities  World renown food and beverages  Gateway to Europe and Asia  High and sustainable growth of the economy  Favourable business environment  10% corporate tax rate (lowest in EU)  10% flat personal incomes tax rate / /  Investment incentives for qualified investment  Among lowest operational cost in a European market economy  Duty free agreements covering markets with 550 mln. customers  Double Taxation Avoidance Treaty with Korea

INVESTMENT POLICY DIRECTORATE TEL: FAX: REPUBLIC OF BULGARIA MINISTRY OF ECONOMY AND ENERGY